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Bulletin of the Transilvania University of Braşov • Vol. 6 (55) •No. 1 - 2013
Series V: Economic Sciences
DRIVERS OF
THE INTERNATIONAL EXPANSION OF
EMERGING-MARKET MULTINATIONALS
D. BOȘCOR1
G. BRĂTUCU1 C. BĂLTESCU1
Abstract: The purpose of the present paper is to analyze the drivers of the
international expansion of emerging market multinationals and the strategies
applied by these companies in other emerging and developed markets.
The paper applies a conceptual approach combined with analyses of
statistics and secondary material and presents the company and the country
specific advantages. The proposals for the Romanian companies and
institutions are based on the comparison between the drivers of expansion in
the BRIC countries.
Key words: emerging-market multinationals, strategy, expansion.
1. Introduction
Emerging-market multinationals are
expanding all over the world and are
increasingly competing with major global
firms for businesses and customers. In the
Fortune Global 500 list of the world’s
biggest companies, in 2012, 73 companies
were Chinese, 8 companies were Indian, 7
companies Russian and 8 companies were
from Brazil. The advances in information
technology, the policies of governments
and the cheap capital have driven these
companies to gain access to new markets
through acquisitions and joint ventures.
Other reasons for the international
expansion were the access gained to raw
materials and the reduction in the
dependence on the domestic market.
Substantial
R&D
investments
and
innovations in BRIC countries and other
emerging markets have determined a
rebalance of global power.
Global giants can be found in the BRIC
countries but also in smaller countries as
1
Turkey and Egypt. Emerging-market
multinationals have developed new
technologies and new brands and are
participating in the consolidation of global
industries such as: car-making, chemicals
and telecommunications.
The advantages of emerging-market
multinationals compared to western
multinationals are: they can better manage
a broad range of risks, because of the
experience gained in the challenging home
environments, they can easily adapt
products to local markets and they can use
diaspora populations for global expansion.
In order to be competitive with Western
multinationals and multinationals from
other emerging markets, these companies
must have a continuous access to natural
resources, human resources and capital.
Regarding the ownership forms, most of
the Chinese multinationals are owned by
the state, but there are also many private or
family
owned
companies.
The
conglomerate structure can be found in
Dept. of Marketing, Tourism and International Relations, Transilvania University of Braşov.
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Bulletin of the Transilvania University of Braşov • Vol. 6 (55) • No. 1 - 2013 • Series V
India, South Korea, Middle East and
Africa and many economies of emerging
markets are dominated by large, diversified
business groups.
2. Drivers of international expansion
According to Johanson and Vahlne,
companies tend to enter the closest
markets, from the geographical and
cultural point of view, and then they
expand into more distant markets. [6]
For example, companies from Russia
invested in countries from the former
Soviet Union, benefiting from the
knowledge of local traditions and business
practices and the common language. In
case of the Brazilian multinationals, the
theories regarding entering the closest
markets because of the advantage of
distance and similarities are no longer
valid. A study made on the exports of 109
large Brazilian companies shows that for
53% of the companies, the first destination
for exports are countries from Europe,
North America and Asia. The Brazilian
multinationals are targeting the largest and
most dynamic markets in the world
because innovation is the key to success in
these markets and they set up the trends for
different products and new technologies.
For example, Embraer, the Brazilian
airplane producer, set up subsidiaries in the
United States, Europe and East Asia,
which in 2007 accounted for 74% of its
revenues. USA was in 2009 the country
having the greatest number of Brazilian
companies. China has also attracted a big
number of Brazilian multinationals
because of low production costs, qualified
labour and a huge market. The
most
important drivers of the international
expansion
of
emerging-markets
multinationals are the firm specific
advantages and the country specific
advantages.
The
most
important
competitive advantages of companies are
linked to technology and innovation. In
order to face increasing competition,
companies should adopt measures for
increasing the trust of real or potential
customers in the quality of their products
and services.” [7]
The acquisition of companies, mainly in
developed countries, for improving
technology, was a strategy used by
Chinese companies. An example could be
the acquisition of an IBM business, by the
Chinese computers manufacturer, Lenovo.
Many companies from China are
exploiting the ownership advantages based
on the low labour costs and these
advantages are expected to rise with the
level of education and the sophistication in
science and technology infrastructure.
A company can invest abroad only after
reaching a strong competitive position in
the domestic market and after having
accumulated experience and some
exceeding resources. Lenovo has gained
international business experience and had
access to improved technologies and
international networks. They have acquired
new technological and managerial
knowledge and they have succeeded in
becoming a global player in the field of
computers.
Other company’s specific advantages
which can be considered drivers of
international expansion are the alliances
made by companies in the local and
foreign markets. Russian companies
entering sophisticated markets of Western
Europe and North America, as well as
Asian countries, tend to rely on strategic
alliances because local partners facilitate
entry into foreign markets. Strategic
alliances are becoming an essential vehicle
of developing and sharing new technology.
Companies from China had the
opportunity to learn from different
alliances with foreign companies in the
Chinese market and western multinationals
have greatly improved the efficiency of the
Chinese economy. Many small and
medium sized Chinese firms are affiliated
in business networks with western
Boșcor, D. et al.: Drivers of the international expansion of emerging-market multinationals
multinationals. In order to improve the
R&D capability of Chinese telecom
enterprises, the governments played an
important role in creating a strategic
alliance between Huawei and foreign
telecom giants as Motorola, Siemens and
Nokia.
Regarding
the
country
specific
advantages, the government and the
policies adopted can be considered an
important driver of international expansion
for the emerging-markets multinationals.
The Brazilian state, together with different
other institutions, like the National
Development Bank, the Ministry of
Development and the Brazilian agency for
the Promotion of Exports and Investments,
had an important role in the restructuring
of local companies and in the international
expansion. Industrial policies were used to
stimulate innovations and the development
of new technologies. The Brazilian
government also provided incentives and
protection in the formation of large private
groups, privatization being sometimes
restricted to national capital. All these
policies have tried to reduce the economy’s
dependence on commodities.
Different institutions, such as the Bank
of Brazil and The Brazilian Trade and
Investment Promoting Agency are
involved in supporting the multinational
activities of Brazilian firms, promoting
Brazilian products and services abroad and
attracting foreign investments to strategic
sectors of the Brazilian economy. APEX
has six „Business Centres” located in
Miami, Beijing, Moscow, Warsaw and
Havana where Brazilian companies can
benefit from logistical support, warehouses
and offices. APEX works together with the
local diplomacy to negotiate the entry of
firms to markets considered very
restrictive, or closed, like Cuba.
The Brazilian government is trying to
support
companies
intensively
in
technology, innovation and knowledge,
which could improve the credibility of the
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Brazilian economy.
The Russian government has not
developed a consistent policy of assisting
Russian multinationals in the global
expansion yet, but invited local companies
to use a similar policy with China, to
expand overseas and to cut the dependence
on foreign technology.
The Chinese government is also
supporting the technology development of
local companies and investments in
innovation. The government of China has
used the extensive network of overseas
Chinese to promote the sales of Chinese
goods worldwide because business and
social networks can help companies to
transnationalize. [10] For example, the
Chinese government provided soft loans
for Huawei’s international operation, two
state-owned banks – The Export Import
Bank of China and China Development
bank providing Huawei 10,6 billion $
credit in 2004. As a high technology
company, Huawei benefited from the
priorities of access to capital resources,
raw materials and preferential tax policy
and gained several advantages from the
foreign policy and the „go global” policy.
The „go global” policy was launched in
1999 by the Chinese government to
encourage Chinese companies to improve
their competitiveness by investing
overseas.
The governments can support the
international expansion of multinationals
from emerging markets by creating the
infrastructure, by promoting the country’s
capabilities, by attracting investment and
promoting research and development and
by creating a favourable and predictable
business environment.
Another important driver of the
international expansion of emergingmarkets
multinationals
was
the
globalization of markets. The increased
economic liberalization, the reduction of
tariffs and other barriers and the change of
commercial policies has created new
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Bulletin of the Transilvania University of Braşov • Vol. 6 (55) • No. 1 - 2013 • Series V
global markets. In the international
expansion, Chinese companies are trying
to gain access to new resources, investing
in countries like Algeria, Iran, Saudi
Arabia and many other countries from
Africa, in sectors ranging from extractive
industries to financial services.
The national prestige can be considered
an important reason of the international
expansion, governments from emerging
markets making efforts to support local
companies which can improve the national
image. Indian companies like Tata and
Infosys, Chinese companies like Lenovo,
Huawei and the Brazilian company
Embraer are well known all over the
world.
3. Strategies used by emerging-markets
multinationals
in
international
markets
Emerging-markets multinationals have
approached
the
base-of-the-pyramid
markets, trying to attract the low-income
customers. Examples refer to the Indian
Tata group, which has launched the car
Nano, with a price of 2500$ and the
Brazilian retail chain Casas Bahia which
has used a credit rating system allowing
low-income consumers to buy products.
Another strategy used by emergingmarkets multinationals was the adaptation
of products, taking into account customers’
requirements and cultural differences. For
example, the Korean company LG has
used the localization strategy in the BRIC
countries group.
Regarding the branding strategies,
emerging-markets multinationals have
developed local brands which were used in
international markets, as it is the case of
the Chinese computers producer Lenovo,
have acquired established brands, as it is
the case of the Indian group Tata, or have
developed new brands in order to meet
local preferences.
Innovation and R&D are new strategies
used by emerging-markets multinationals
because they are considered an important
competitive
advantage.
The
R&D
Scoreboard of the top 1000 global
companies by R&D investment, published
by the UK Department of Business,
Innovation and Skills shows that, in 2009,
from the total number of 1000 companies,
24 were from the BRIC group, China
having the biggest number of companies12. The research and development
expenditure will increase in China from
1.97% to 2.5% of GDP by 2020 with the
national
government
support.
The
expenditures on R&D for the year 2011 for
the first 10 countries are presented in table
nr. 1.
List of countries by research and development spending
Rank
Country/
Region
Expenditures on R&D
(billions of US$, PPP)
Table 1
% of GDP PPP
1
United States
405.3
2.7%
2
China
296.8
1.97%
3
Japan
160.3
3.67%
4
Germany
69.5
2.3%
5
South Korea
55.8
3.74%
6
France
42.2
1.9%
7
United
Kingdom
India
38.4
1.7%
36.1
0.9%
8
Boșcor, D. et al.: Drivers of the international expansion of emerging-market multinationals
Rank
Country/
Region
Expenditures on R&D
(billions of US$, PPP)
13
% of GDP PPP
9
Canada
24.3
1.8%
10
Russia
23.8n1
1.0%
Source: Wikipedia.org
Chinese and Indian companies are
involved in extensive research. For
example, Huawei from China has R&D
centres in India, Russia, Sweden and the
United States, and Tata Motors has an
engineering research centre in India, with
more than 1400 scientists and engineers.
Another strategy used by emergingmarket multinationals is the collaboration
with developed-market multinationals for
the research and development of products.
An example in the pharmaceutical industry
is
the
collaboration
between
GlaxoSmithKline and Ranbaxy. In order to
innovate, emerging –market multinationals
must collaborate with universities, local
governments and research institutes.
Regarding the entry on foreign markets,
emerging-market multinationals tend to
approach emerging markets first because
they can better understand these markets
and they can face different challenges and
risks better because of the experience
gained in the environments in which they
have developed.
The human resources strategy involves
the creation of customized training
programs, inside the company or in
collaboration with universities. Another
rich source of talent is the dispora of
emerging nations because they bring the
understanding of cultural diversity and
international business practice. Beside
advantages as cheap labour and natural
resources in many emerging markets, other
country specific advantages, such as
skilled labour, advanced technology,
advanced commercial and physical
infrastructure, should be developed. The
most important advantages of India are: the
low cost of labour, the design and
development
capabilities
and
the
availability of a highly educated, English
speaking human resource.
4. Conclusions
Investments made by companies from
emerging markets toward other emerging
markets have increased because of the
favourable policies adopted by local
governments for foreign investments. For
example, India has created Special
Economic Zones providing exemptions on
import duties for foreign investors. In the
fields of telecommunications and financial
services, restrictions on foreign ownership
have been relaxed in Africa. Many foreign
direct investments from China are directed
towards emerging markets because
companies are trying to gain experience
from familiar markets before they
approach more mature markets.
The multinational companies from
emerging economies have a much more
aggressive approach as compared to the
developed markets multinationals. In order
to face increased competition, Romanian
multinational companies must build a
strong position on the local market and
must also expand in profitable foreign
markets.
Romania should not be considered only
an outsourcing destination for Western
multinationals, but should try to develop
the fields of business services and high
value manufacturing.
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Bulletin of the Transilvania University of Braşov • Vol. 6 (55) • No. 1 - 2013 • Series V
A good strategy for the international
expansion of Romanian companies might
be the multi-regional niche-players
strategy, appropriate for smaller companies
operating in niche sectors in multiple
regions using innovative technology and
processes. Such a strategy could be used in
the IT field, where Romania has the
advantage of skilled low-cost labour and
the availability of a highly educated,
English speaking human resource.
Another
strategy
for
Romanian
companies would be the alliance with
foreign partners in order to gain experience
and have access to new technologies and
know-how.
Regarding the government, a stronger
support for financing and promoting the
expansion of Romanian companies on
international markets would be crucial.
Different institutions, such as banks and
agencies for promoting investments and
exports should help Romanian companies
expand abroad.
Investments in education, in new
technologies and innovative products
might help Romanian companies compete
on the global stage.
4.
5.
6.
7.
8.
9.
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